Is Blockchain the Future of Digital Identity?

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The internet used to be a tool largely concerned with entertainment, a primitive games console of sorts. Today, however, many of us live our lives online. It’s where we play, yes – but it’s also where we communicate, where we shop, where we bank. We complete mortgage applications online, store sensitive personal data with a range of third parties, and converse with friends and family via tools like Facebook Messenger and Zoom.


Digital identity is the term given to our digital selves, the online equivalent of our physical passports, driver’s licences and other credentials. With effective digital identity solutions, individuals can prove they are who they say are when accessing day-to-day services. In a market set to exceed $30 billion by 2024, blockchain has been touted as a digital identity solution that could return data ownership to the user while protecting privacy and ensuring transparency. But how exactly does it work, and what makes blockchain uniquely suited to this task?


On-Chain Digital Identity

Blockchains hold a permanent, immutable record of transactions recorded on chains of individual computers (“blocks,” hence blockchain). Typically associated with cryptocurrencies like Bitcoin and Ethereum, blockchains also have non-monetary use-cases, including in supply chain management, real estate and auditing.

By implementing a permanent electronic record over an auditable, tamper-proof chain, blockchains facilitate speedy verification and authentication of information; it’s up to the user of the blockchain what information is recorded.

In the digital identity sphere, blockchains can be used to store unique information related to individuals, and in doing so benefit not only end users but also enterprises, governments and IoT management systems.


Building a Better Digital Economy

A number of companies have made it their mission to enhance the digital identity landscape by implementing blockchain technology. Concordium is a notable example. A privacy-focused public and permissionless blockchain, the platform has built a self-sovereign identity layer which uses zero-knowledge cryptography to let users anonymously and privately transact and share information.

What this means, in essence, is that the user’s anonymized identity is held on-chain (zero-knowledge proof), with third parties able to validate them without witnessing the evidence for themselves. This third party might be a bank verifying a sound credit history, or an airline confirming the legitimacy of a passport. Importantly, the individual retains complete control of their data, safe in the knowledge that it cannot be breached.

Concordium has been created to integrate with existing financial and business frameworks that require knowledge of a user’s identity; these third parties are simply relieved of the responsibility for storing and safeguarding that data.

Accountability isn’t sacrificed either, thanks to Concordium’s ability to revoke anonymity under extreme circumstances; for example, a court might request the identity of a user responsible for suspicious activity. In this instance, the Unique User Identifier stored on-chain can be decrypted to reveal their real-world identity. However, the process is conducted in a decentralized approach, meaning no single party can revoke anonymity by itself. In addition, it is not possible for a hacker to achieve this feat.

Concordium is the brainchild of a multi-disciplinary consortium comprising cryptographers, software engineers, scientists, entrepreneurs and researchers with global enterprise experience. This includes Professor Ivan Damgård, one of the world’s most respected and cited cryptography researchers, and former NATO Secretary-General Anders Fogh Rasmussen, who sits on the Advisory Board alongside former NASDAQ Vice-Chair Hans-Ole Jochumsen.

Together, Concordium’s all-star core, research, and advisory teams have developed a user-friendly blockchain that enables the generation, issuance and authentication of identities online.


Security and Simplicity

On the face of it, blockchains offer many advantages over existing identity management systems, wherein personal information is stored on assorted databases owned by private companies: energy companies, telecommunications firms, banking institutions and so forth. Let’s look at security first of all, since these databases represent data honeypots for hackers and are often breached.

This year alone, a data breach at Virgin Media exposed personal details belonging to 900,000 customers. In Denmark, the taxpayer identification numbers of over a million citizens were accidentally exposed, and a data breach at airline easyJet impacted over nine million customers, with exposed data including financial records. The sad truth is that billions of consumer data records are leaked every year.

With a blockchain-based digital identity solution, encrypted personal information would live on a decentralized ledger, not in the hands of various centralized entities. The reason the Bitcoin network has never been hacked is due to the underlying blockchain technology that the system depends on.

Simplicity is another key benefit. It is entirely inconvenient to handle the physical identity methods currently available, with users having to register, authenticate and manage numerous online accounts every day. Blockchain-based identities, on the other hand, ensure trustless verification via devices such as smartphones, and make it altogether more difficult for bad actors to develop fake identities/profiles to commit fraud.


How Will Digital Identity Affect Business Models?

The evolution of the digital identity landscape is not solely in the hands of blockchain builders, of course. Governments are increasingly recognizing the importance of securing data flows. In Germany, Chancellor Angela Merkel recently convened a meeting of company representatives from the likes of BMW, Daimler and Lufthansa. The topic up for discussion: how the state and business can collaborate to ensure secure user identification.

The European Blockchain Services Infrastructure (EBSI), meanwhile, seeks to enhance the way in which citizens, governments and businesses interact throughout the EU. Citizens can utilize EBSI to obtain digital “copies” of important documents and share data with customs and tax authorities. The system is currently up and running, with individuals and organizations invited to participate.

The ultimate goal of using blockchain for digital identity is to return data to the hands of individuals. With self-sovereign identities, citizens take ownership of their identifying information while companies have limited (if any) access. Thanks to projects like Concordium, that goal is coming into clearer focus.


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